The Panic of 1907

Chicago Clearing House check issued during the Panic of 1907. This is one of the more common types of scrip available..

The Panic of 1907 was a crisis in the US financial markets that occurred at the end of 1907 and carried into the beginning of 1908. The crisis caused the value of the New York Stock Exchange to drop nearly 50%.

In October 1907, an attempt was made to corner the market in the United Copper Company. The attempt was unsuccessful and the financial institutions that financed the takeover attempt could not recover leading to the collapse of the Knickerbocker Trust Company of New York. The dominoes began to tumble and panicked depositors pulled their money from the banking system.

Portland Clearing House Certificate from November 1907.

The country was already in a recession when the banking crisis struck a significant blow to a shaky economy. The panic began to ease as J.P. Morgan and other New York financiers pledged their assets to prop up the banks. But then another emergency arose.

The brokerage house of Moore and Schley was heavily in debt using its holdings of the Tennessee Coal, Iron and Railroad Company as collateral. When the companies stock price fell, the brokerage firm was in trouble. At the same time, the Trust Company of America and the Lincoln Trust Company were also teetering on the brink.

Payroll check issued by the Great Lakes Coal Company of Pittsburgh during the Panic of 1907.

J.P. Morgan again stepped in with a plan for his US Steel to purchase the Tennessee Coal, Iron and Railroad Company. As a condition to making this happen, Morgan demanded that the solvent banking institutions rescue their failing cousins. The bankers eventually agreed but President Roosevelt’s anti-monopoly sentiment presented a potential road block. US Steel had 60% of the US market and an additional acquisition would result in intense scrutiny from the president.

These latest events occurred over the weekend of November 2, 1907. Resolution was necessary before the markets and banks opened on November 4. On Sunday afternoon, Morgan sent his representatives to Washington. The president’s secretary refused to allow them to meet with Roosevelt. It took the intervention of Secretary of the Interior James Garfield to get the ear of the president. Roosevelt understood the gravity of the situation and approved the plan as the sun arose on November 4. Crisis was averted again.

Circulating bearer cashier’s check from Rocky Ford, Colorado.

In order to meet the cash shortages that spread throughout the country, local scrip was issued to provide a medium of exchange. The scrip was mostly in the form of circulating cashier’s checks and clearing house certificates. Hundreds of different varieties of these certificates representing millions of dollars were issued locally but no national solution was available.

The Panic of 1907 demonstrated that the Department of the Treasury’s control over the money supply was inadequate to meet the illiquidity in the financial system caused by the bank failures and depositors’ withdrawals. The lessons learned resulted in the creation of the Federal Reserve System in 1913.

Satirical $1,000 Cleaning House Association Certificate.

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